Strange as it sounds, my experience mapping under-the-radar power in Communist Poland, as a social anthropologist, helped me identify a new breed of modern-day power broker here in the U.S. Unaccountable operators are increasingly shaping public policy to suit their own interests, a disturbing trend I examine in my book Shadow Elite.
But perhaps not as strange as this sounds: Gillian Tett's fieldwork studying marriage rituals in a mountain village in Tajikistan helped her, years later, understand how risky derivatives proliferated, and went unnoticed, until they helped detonate the global financial system. Tett is also a social anthropologist by training. Now she's a top editor/journalist for the Financial Times, by trade, and she joins others with anthropological know-how offering crucial insights on derivatives and the "dark markets" that have been key areas of combat in the financial reform fight being waged on Capitol Hill.
Tett is the author of Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. Last fall in Anthropology News, she made this comparison:
...bankers (like Tajik villagers) operate as a tightly defined group, with specific cultural patterns and a quasi language (or jargon) of their own. Also like Tajik villagers, bankers are generally trained to think in rigid "silos" and, as a result, find it hard to see how their overall system operates, or to see the contradictions in their own rhetÂoric and internal organizations.
From the outside and with hindsight, the contradictions now seem glaring. Inside this closed culture, the ideals of the free market are repeatedly espoused, but not upheld. Derivatives, the exotic financial contraptions that vastly enrich the banking business, have flourished in the shadows, not in the open marketplace.
As I discuss in Shadow Elite, bankers capitalized on this aura of unmatched complexity, ever-changing technologies, and unstoppable financial "innovation", all during an era when deregulation had become the norm. They used jargon, as Tett points out, and also a stranglehold on information as weapons to obscure, making effective oversight very difficult. She elaborated in the FT on the warring Wall Street "tribes" within a single firm, and how the derivatives tribe came to dominate.
Groups such as Citi or Merrill appear to have developed a more hierarchical pattern, in which the different business lines have existed like warring tribes, answerable only to the chief. Moreover, the most profitable tribe has invariably wielded the most power - and thus was untouchable and inscrutable to everyone else. Hence the fact that, in this tribal culture, nobody reined in the excesses....
[It is one] that empowers the [bankers and their lobbyists] who can say, 'listen Congress, listen policymakers, we're the ones who know what's going on. So just back off. There's no way you can understand unless you have a degree in advanced math or advanced physics.'
....the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.
...in the debt and derivatives world .... bankers generally loathed publicity and would rarely give "on the record" quotes. Moreover, it was difficult to get price or trading data since deals were typically made in private, not on public exchanges, and discrete events seemed few and far between. The debt and derivatives markets did not create "stories"--or not as defined by the Western press.
With journalists stumped, could anyone in the Washington power "village" stand in the way of runaway derivatives, and the banks that wanted to keep them unregulated? Ironically, there were few policymakers more capable of understanding derivatives or their real world impact than Clinton Treasury Secretary Robert Rubin and his deputy Lawrence Summers. And both were there when derivatives could have been at least partially reined in before they became, to quote Warren Buffett, "financial weapons of mass destruction." Instead they did exactly the opposite, blocking key regulation at pivotal moments, as we saw in Summers' remarks above, with Rubin going on to benefit from this deregulated Wild West when he left Washington and returned to Wall Street as a top executive.
Here again, taking an anthropological view can be instructive. Consider the elite conclaves both came from, and the biases and potential conflicts attached to them. Rubin originally came to Washington after decades at Goldman Sachs, a firm renown for its culture of invincibility. Summers came from a somewhat similar culture - Harvard - with ample faith in both himself and the efficacy of the free market.
Their boss, President Clinton, was intent on being the pro-business "New" Democrat. In the last two months, all three have tried to distance themselves from their roles in letting derivatives go unchecked. (And in true shadow elite fashion, none of them have faced the consequences of their actions. In fact, the only ones to really suffer from the failure of the elite are the non-elite, millions of regular people who've lost their jobs, houses or savings.)
And derivatives remain unchecked. Just because the economy cratered doesn't mean that all these money-printing machines have disappeared. According to calculations by Bernstein Research, Goldman Sachs could lose 41 percent of its profits if the new derivatives regulations pass. Banks generally don't break down their figures on this part of their business (surprised?), but it seems fair to estimate the percentage of the bank revenue that comes from derivatives is solidly in the double-digits (at some it could be more than 50%) To put this in perspective, imagine a food company that gets half its revenue from selling products that go totally unregulated by the FDA, and whose practices are hidden from both regulators and journalists.
Tett notes sociologist, philosopher and anthropologist Pierre Bourdieu as arguing,
...elites .... invariably try to hang onto power--not so much by controlling the physical means of production, but by also dominating the cognitive map, or social discourse. What really matters ...is not what is publicly discussed, but what is not discussed. Social silences, in other words, are crucial.
Her message: when the people in power insist a little too hard that there's no story to be found, start digging in. Tett says this should be a wake-up call for journalists and anthropologists, to question the people drawing that cognitive map. One reviewer dismissed this as "preachy" advice. It might be, if she wasn't dead right.
Linda Keenan edits the Shadow Elite column.
Follow Janine R. Wedel on Twitter: www.twitter.com/profjanine
Stuart Whatley: Financial Reform Won't Alter Capitalism's Icarus Trajectory
This era's troubling reality is that economics now dictates our cultural values. We no longer have a say in how resources, production, and mutual prosperity should be systematized to achieve the best society for all.
Fortune's Stanley Bing: A Shout-Out to Lobbyists
But aren't we being a bit unfair to lobbyists? They have a job like any other. I knew a few of them, and they were very nice. If others were writing the script right now, they would be our heroes. If we're not careful, they may well be again.
"Leverage of an economy's debt
Derivatives massively leverage the debt in an economy, making it ever more difficult for the underlying real economy to service its debt obligations, thereby curtailing real economic activity, which can cause a recession or even depression. In the view of Marriner S. Eccles, U.S. Federal Reserve Chairman from November, 1934 to February, 1948, too high a level of debt was one of the primary causes of the 1920s-30s Great Depression. (See Berkshire Hathaway Annual Report for 2002)" http://en.wikipedia.org/wiki/Derivative_%28finance%29
Derivatives are a cancer on the economy.
Dereavtives suck all the money OUT of Main Street and into gambling.
Derivatives crash the world economy. times after time.
Hedge you "bets" by investing in a diversity of Main Street ventures.
That's way, everyone wins.
Every penny invested in derivatives,
is a penny Main Street did not get.
Outlaw all derivatives, force investment back to main street.
Make Main Street investments, the way you hedges you bets.
That will rescue the economy as it has before. FDR was correct.
Instead, I think they believe they've created a charade that Main Street accepts as something too complex for common people to understand. But it's a game. It's The Emperor has No Clothes.
I don’t disagree that derivatives should be outlawed. Clearly they are nothing more than a sophisticated veneer to a simple fraud. But I don’t think the public has been forgotten as much as subjected to an audacious scam.
Time to call the snake-oil salesmen on their ploy.
Survivors Bias, makes the rich ones claim it works!
And the big ones used "too big to fail" to extort the taxpayers.
people that put together the first AAA rated product that contained
sub-prime mortgages(I was impressed even though the FT put it on page 17).
I just chased it down and it was an edited extract(their words) from her book
you mentioned at the top.
http://www.ft.com/cms/s/2/51f425ac-351e-11de-940a-00144feabdc0.html
Derivatives, the exotic financial contraptions that vastly enrich the banking business, have flourished in the shadows, not in the open marketplace.
So what we're supposed to get out of this sentence is 'Derivatives, which have existed for more than 200 years and caused no harm through the best progress of living standards in human history, are the problem because the clearing houses that bring buyers and sellers together make (a lot of) money"
There is a very legit argument to be made for derivatives to be put on exchanges and it has nothing to do with this nonsense. The reason is that so when companies take risk off their balance sheet they are not in the dark that their insurance counterpartys are completely reckless (AIG).
Its very easy to throw raw meat away from the issue and distract the masses, but politicizing a serious problem makes our markets more dangerous, not less.
General judgments about an activity can be based on its net effect.
That's why we need not listen to the financial lobbyists telling us that we cannot regulate what only they can understand. The effects are clear enough. In fact, the complicated mechanics of the transactions only serve to obscure their nature.
open your eyes: it's the other way around.
Lloyd Blankfein, Chief Executive Officer and Chairman of Goldman Sachs
with Lloyd Blankfein
in Current Affairs, Business
on Friday, April 30, 2010
http://www.charlierose.com/view/interview/10989
He should get an Academy Award for acting. Another deluded Harvard sociopath. We are mass producing these people. They have no souls. They have no allegiance to the United States.
They are to investment banking what Apple is to tech - best in breed trading, best management team, best market making. It says a lot when the very firm the government is trying to protect from goldmans products continues to use its trading platform and has not made a single public remark.
Questioner: "Do you wish to be president, Sir?"
Answer: {by David Rockefeller} : "Me? ------ President? -------- I make The President!!"
Now some among the Shadow Elite are actually hiding out in the open. For instance, the politicians who would not rein in Wall Street e.g. Obama, Dodd, the republicans pointing fingers at Fannie and Freddie instead of directly at Wall Street. These are just some examples. Of course, to the extent that Fannie and Freddie ARE a part of the problem, they need to be dealt with also. For instance, they are/were part private sector and part government sector. Given the collusion between the elites of the governmental and non-governmental sectors, to protect the status quo of privatize the gains (for the elites) and socialize the losses (to the rest), they need, at least, to be restructured.
What we have here is watered down health care "reform", watered down financial "reform" and lots of oil in the water wreaking havoc.
got the first contract to put man on the moon. I planted the first question refer to man being selfish, greedy and a liar for not having an alternative to cheap oil. His reply was that an electric train was tried but did prove to be expensive. Later geologist prof. Shrock approached me saying the only way to change it was to destroy everything. This of course made a big impression on me so now the collective organism has grown like a bad weed causing endless harm to many. The research we need is to form a board of intellegent young people and give them all the support we can for they have the most to lose..........best wishes
The corollary to that would be to recognize what affects human behavior and use that knowledge construct our systems to avoid these problems. For example, we know that rewards for a certain behavior promote that behavior. So if we stop rewarding these people for creating these complicated financial instruments and instead reward them for creating instruments that help manufacturing, entrepreneurship, and things in the real economy, we could avoid this “natural” tendency.
The bottom line is: not all profit is good profit. Economies should be based on adding value, real value that everyone can understand. If you take a piece of wood and turn it into a piece of furniture, you have created value. If you invent some way people can bet on the performance of a certain instrument, and someone must win and someone must lose, you have created nothing, and we must not let any amount of jargon, spin or payoffs convince us otherwise.
Fanned!
http://www.bankreviews.org/
The second part of the corruption was easy to understand. Wall Street knew that it was issuing defective mortgage bundles. Thus, its executives placed "bets" that the defective mortgage bundles were defective. This is the same as betting against a race horse you have just drugged.
We are the most corruption industrialized nation and we have the lowest educational level. When corrupt morons run the show, things tend to go badly. That is why Geithner is Obama's Rumsfeld.
In hindsight we all understand derivatives now because since the crash they have been explained over and over in the press. Did you understand them before the financial bubble burst? That is the point of the article.
Absolutely SHAMEFUL!